Tuesday, May 19, 2009

Could do better – our academic economists. Also, the origin of the term 'quantitative easing'.

A billowing of healthy scepticism was bursting forth from the lecture room in Building 67 at the University of Southampton today as a second seminar took place at the Centre for Banking, Finance & Sustainable Development. Tim Congdon the eminent monetary economist in particular gave five modern schools of economic thought low marks for analysis of the current problems affecting the financial system. He said it took the Bank of England 9 months to carry out his recommended solution, that is: to start creating money, otherwise known as quantitative easing. His firm Lombard Street Research has a long track record of spotting the variation in the liquidity ratio of companies (comparing their bank deposits to their bank borrowings) which show high and rising values (60%+) in a boom and dropping values (under 50%) as recession looms. This should have alerted economists in the Treasury to the dangers, but they did not warn Alistair Darling, the UK’s Chancellor. But one got the impression that Tim Congdon is not surprised, bearing in mind what he called the ‘trash taught in universities’.

Did you know that it was Professor Richard Werner now Chair of International Banking at Southampton who first coined the term ‘quantitative easing’ in Japan where he was advising at the time? He showed a headline from a Japanese newspaper for 2nd September 1995 which used his term. At the time he thought that ‘printing money’ was a bit blatant and ‘credit creation’ too novel, so he coined ‘quantitative easing’. He was the second speaker today - see later on this blog for further reports. He had some quite intriguing things to say.

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